Nov. 4 (Bloomberg) -- The yen traded near a three-week high against the dollar on speculation the Federal Reserve will today repeat its pledge to keep interest rates low for an “extended period,” diminishing the appeal of U.S. assets.

The yen may head for a second day of gains versus the euro after Japanese Finance Minister Hirohisa Fujii today said the government will probably cover a tax revenue shortfall with debt sales, adding to signs the nation’s economic recovery will take time. Australia’s dollar was poised for two days of losses against the greenback after an Australian government report showed retail sales unexpectedly dropped, raising concern its central bank will temper the pace of rate increases.

“The Fed will have no choice but to keep interest rates for a while,” said Minoru Shioiri, Tokyo-based chief manager of foreign exchange trading at Mitsubishi UFJ Securities Co. “There’s still too much supply of the dollar in the market. The bias is for the dollar to weaken at least by year-end.”

The yen traded at 90.33 per dollar at 6:15 a.m. in London, unchanged from the level in New York yesterday. It reached 89.20 on Nov. 2, the highest level since Oct. 14. Japan’s currency was at 133.04 per euro from 133.01.

The dollar bought $1.4734 per euro from $1.4724 in New York yesterday. The U.S. currency fetched $1.6433 per pound from $1.6436, and was at 1.0258 Swiss franc from 1.0259 franc.

Fed Meeting

Gains in the dollar were limited before the Fed releases its monetary policy statement today at the end of a two-day meeting. Policy makers will hold the benchmark interest rate target in a range between zero and 0.25 percent, according to the median estimate of economists in a Bloomberg News survey.

Providing evidence the recovery in the U.S. economy may take time, a Bloomberg News survey of economists said a Labor Department report on Nov. 6 may show the jobless rate rose to 9.9 percent in October from 9.8 percent in September.

The Dollar Index, which the ICE uses to track the dollar against the currencies of six major U.S. trading partners, traded at 76.256 from 76.386 yesterday.

The yen had strengthened on concern that the government’s tax revenue is declining. Finance Minister Fujii said last month the nation’s budget deficit for the year ending March 31 may be “quite large” as tax revenue falls, an indication bond sales may exceed 50 trillion yen.

Japan’s tax receipts may drop below 40 trillion yen in the fiscal year, less than the earlier 46 trillion yen forecast, Fujii said on Oct. 20.

‘Risk Aversion’

“The idea of covering falling tax revenue with debt damps the economic outlook,” said Koji Fukaya, a senior currency strategist in Tokyo at Deutsche Bank AG. “That may be adding to risk aversion,” boosting demand for the yen.

The yen typically strengthens in times of financial turmoil as Japan’s trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders. The dollar benefits as the world’s main reserve currency.

Australia’s dollar dropped after a report showed the nation’s retail sales fell 0.2 percent in September after rising 0.7 percent in August. Economists surveyed by Bloomberg expected a 0.5 percent gain.

The data came a day after the Reserve Bank of Australia said it was “prudent to lessen gradually” the stimulus provided by low borrowing costs.

“The market is a bit sensitive after the RBA was more dovish than expected yesterday and so we’re seeing a relatively sharp reaction to modestly weaker data,” said Thomas Harr, a senior currency strategist at Standard Chartered Plc in Singapore. “You have declining risk appetite in markets at the moment, and therefore there’s more focus on the negatives.”

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

Last Updated: November 4, 2009 01:27 EST